Nestle found to have profiteered Rs 98 crore from GST rate cuts

The Director General of Anti-Profiteering (DGAP) has charged the fast moving consumer goods (FMCG) major Nestle with profiteering. The company has been found to have deprived its customers of goods and services tax (GST) cuts of Rs 98 crore by not revising the prices of chocolates, baby food items and Maggi noodles among other products in line with the new rates, sources said.

The DGAP last week submitted the investigation report to the National Anti-Profiteering Authority (NAA), the apex anti-profiteering body functioning under Ministry of Finance. The NAA will now hear the parties and come up with a final order in three months.

“The investigation reveals that the company did not pass on the benefits of the tax cuts to consumers by way of commensurate reduction in the prices of over 300 products,” a source said.

The GST Council had reduced the rates on a large number of confectionery and FMCG items by as high as 10% in November, 2017, and January this year, respectively.

Nestle products where the prices were not brought down in line with the GST rate cuts include KitKat, Milky Bar, Cerelac, Nan, Nescafe, Nestea and Maggi noodles among others across the food, confectionery, dairy and nutrition portfolio, as per sources. “In many cases, the prices were not reduced uniformly across all packet sizes. For example, the benefit accrued on a small packet was passed on to consumer by reducing the price of the bigger packet in the same category of product,” a source said.

As per rule 171 of the Central GST Act (CGST), 2017, any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

“While the company had taken appropriate measures to pass on commensurate benefits to our consumers, in situations where the benefit could not be passed on instantly by reduction in maximum retail price or increase in grammage, the amount was set aside to be subsequently passed on and was not reckoned either in sales or in profit,” Nestle India spokesperson said in an e-mail reply.

The anti-profiteering watchdog had ordered the probe in May after Nestle admitted to having accrued gains post rate cuts. Earlier, the company had voluntarily offered to deposit a sum of Rs 15 crore as a compensatory measure for not passing on the benefits to consumers immediately at the time of GST rate reduction. The amount was deposited in the Consumer Welfare Fund set up under the CGST Act.

“While we were in the process of taking the next steps to pass on the benefits to consumers, we had a discussion with the NAA, which was cordial and constructive and we decided to deposit, suo moto, the amount which was set aside,” the company spokesperson said.

According to the anti-profiteering rules, if the NAA finds that the company has deprived its customers of the GST rate cut, it can ask it to reduce prices, return the due amount to the customer, impose penalty or cancel registration of the erring firm.

UNDER LENS

The DGAP investigation revealed Nestle did not pass on the tax cuts to consumers by way of commensurate reduction in the prices of over 300 products

Nestle products where the prices were not reduced in line with GST cuts include KitKat, Milky Bar, Cerelac, Nan, Nescafe, Nestea and Maggi noodles